Saxo Spotlight: US long-end yields and oil market remain a watch – July 3-7 Saxo Spotlight: US long-end yields and oil market remain a watch – July 3-7 Saxo Spotlight: US long-end yields and oil market remain a watch – July 3-7

Saxo Spotlight: US long-end yields and oil market remain a watch – July 3-7

Macro 8 minutes to read
Charu Chanana

Head of FX Strategy

Summary:  A short, but critical, week ahead in the markets with the US July 4 holiday and summer lull kicking in potentially keeping volatility at bay. Saxo’s Q3 quarterly outlook will be released this week and dig deeper into the potential and risks of artificial intelligence. On the macro front, US labor market indicators, especially non-farm payrolls, continue to take the limelight while ISM surveys bring a fresh test of the economy’s health especially on the services side. Australia’s central bank decision could be a close one again, while Germany’s recession concerns could deepen. Oil markets will also be in focus as Saudi production cuts take hold and OPEC seminar is held. Earnings calendar is quieter but bank and EV stocks could be in focus.

Saxo’s Q3 2023 quarterly outlook: AI – The Good, the Bad and the Bubble

Artificial intelligence has been quite a rage recently and a key driver in the markets this year. While there is a lot of optimism around artificial intelligence and how it can transform businesses and daily lives, there are also risks of disruption to job markets. Furthermore, steep gains in some key AI-stocks may have already taken us into a bubble territory and the path ahead could be choppy. This adds to the uncertain growth and inflation trajectories which continue to cloud the market outlook. Saxo’s Q3 quarterly outlook – due to be released on July 6 – discusses how the introduction of the potentially groundbreaking AI technology and the hype that follows impacts countries and investors alike. Stay tuned for more and signup here for the APAC webinar on July 19!

US labor market strength could keep long-end yield of 4% in play

The tightness of the labor market was reaffirmed last week with jobless claims data, which together with the upward revision in Q1 GDP brought July rate hike pricing to over 80%. The softer US PCE inflation data was also a welcome relief for the markets, but did not move market pricing for the Fed path, suggesting that Fed expectations remain dependent far more on labor market indicators. Job indicators in the coming week with JOLTs job openings and initial jobless claims due on Thursday and non-farm payrolls out on Friday will be the key focus. Bloomberg consensus expects 9.97mn job openings in May from 10.1mn in April and a further push lower in vacancies per unemployed persons from 1.8 in April. But still the ratio will remain above pre-pandemic levels of 1.2, suggesting a still-tight labor market. June NFP could show headline gains of 225K from 339K in May, while the unemployment rate is expected to dip to 3.6% from 3.7% in April reversing part of the jump in April. Average hourly earnings is expected to slow slightly to 4.2% YoY from 4.3% previously, remaining unchanged at 0.3% MoM. Any hints of wage pressures remaining firmer could make the July rate hike a done deal, bringing 10-year yield closer or above the key 4% level.

US economy health check: ISM surveys and FOMC minutes

The health of the US economy has surprised on the upside lately, and another test will be due this week as ISM survey results are reported. So far, manufacturing has been weakening while the services side of the economy was keeping things afloat. But services PMI is also now just above the 50-mark, having come in at 50.3 in May and a drop below 50 could spell economic slowdown concerns again. The ISM manufacturing will be reported today while ISM services is released on Thursday.

The Fed on Wednesday will also publish the minutes of its June 13-14 meeting when it held rates steady after 10 straight rate hikes in a unanimous decision despite some divergence appearing in Fed member commentaries ahead of the meeting. The minutes should provide markets greater clarity on the stance of the committee members. The dot plot from the June meeting indicated that two more rate increases are coming this year, including one widely expected in July.

Reserve Bank of Australia: rate hike bets gathering pace could make July 4 decision a close call

After two back-to-back surprises from the Reserve Bank of Australia (RBA), the stage is set for another close decision. While the May inflation print of 5.6% YoY came in significantly below April’s 6.8% YoY and the RBA’s minutes from the June meeting indicated that the call to hike rates was a fairly balanced one, but that has not completely erased all calls for another rate hike by the central bank at the July 4 meeting. As per Bloomberg economic forecasts, 13 of the 27 economists polled expect rates to be raised to 4.35% from 4.10% currently, while the market pricing is still complacent at ~20% chance of a rate hike this week. Even if the RBA held rates unchanged this week, the hawkish commentary is likely to continue.

Germany: industrial production could confirm gloomy outlook

While most of the global economy has continued to fare better this year than feared, the Germany economy continues to send shock waves after confirming a technical recession in Q1. Slower global demand and tighter financial conditions continue to dampen the outlook for the manufacturing economy, and industrial production for May released on Friday will be further reflective of what is to come in Q2 GDP. Bloomberg consensus expects industrial production to be flat in May from April’s +0.3% MoM.

Commodities: OPEC International Seminar and Saudi cuts bring oil in focus

July is a key month for oil traders as production cuts from Saudi Arabia take hold. For now, prices remain range-bounded with a floor provided by production cut expectations and levels capped by weakening demand outlook as global monetary policy tightening moves filter through the economy. It is expected that Saudi Arabia may extend its cut to August, and also apply intense pressure on other producers to make additional cuts. The bullish messaging from Saudi and other oil producers could kick off this week at the July 5-6 seminar of oil industry CEOs with energy ministers from OPEC. OPEC is again barring Bloomberg, Reuters and the Wall Street Journal from covering the event, similar to what it did at the last OPEC+ ministerial meeting in June.

Earnings: Bank stocks and electric vehicle manufacturers in focus

We are in the final weeks of a thin earnings calendar before Q2 earnings start to pick up from mid-July and bring a test of the AI exuberance after markets have taken equity valuations to fresh highs. US banks will likely remain in focus this week before tech-focus returns in the earnings season after these banks cleared the Federal Reserve’s annual stress tests last week. The other key market segment in focus will be the EV space and battery suppliers like CATL and LG Energy Solution after Tesla and BYD reported a beat on their Q2 volumes. Samsung Q2 results will be released on Friday and weakness in demand for memory chips could continue to weigh on operating profit.


Earnings this week:

  • MON: Sands China
  • THU: Aeon Co, Levi Strauss
  • FRI: Yaskawa Electric, Samsung Electronics


Key economic events this week:

  • MON: BoJ Tankan Survey (Q2), China Caixin Manufacturing PMI Final (Jun), Swiss CPI (Jun), EZ/UK/US Manufacturing PMI Final (Jun), US ISM Manufacturing PMI (Jun)
  • TUE: RBA Announcement, NBH Announcement, South Korean CPI (Jun), German Trade Balance (May)
  • WED: FOMC Minutes, Chinese Caixin Services PMI Final (Jun), EZ/UK/US Services & Composite PMI Final (Jun), US Durable Goods R (May)
  • THU: NBP Announcement, Australian Trade Balance (May), EZ Retail Sales (May), US ADP National Employment (Jun), US ISM Services PMI (Jun)
  • FRI: German Industrial Output (May), US Jobs Report (Jun), Canadian Jobs Report (Jun)

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